SADOW: Old-Time Populism Makes For Lousy State Real-Estate Deals

The reason why Louisiana finds itself caught short on a real estate deal with larger budget implications is the populist obsessive-compulsive disorder too many politicians have with state ownership and provision of things.

When after 2011 the state contractually was free to do what it willed with the 17.22 acres comprising what it had run until 2009 as the New Orleans Adolescent Hospital, the plan that evolved during this past legislative session, as constituted in Act 867, was to lease it to the neighboring Children’s Hospital in an arrangement that hoped to bring the state $35 million, or the value at which the state had insured it. In turn, that money, presumed realized by no later than Aug. 1, 2013 (as the last bills of state government for the prior fiscal year came due), was to be treated as “one-time” funds eligible for use.

But now it turns out that the property’s appraisal is just $20.9 million. There’s some room for debate there when accounting for a different use – for example, put down some streets and drainage, sell 50 lots of a third of an acre in size with houses to match, and being prime Uptown property in the shadow of Audubon Park you might get a million bucks a house and a developer might be willing to fork over $35 million for it as is – but it’s all hypothetical because the law doesn’t permit that. It only allows for negotiations exclusively with Children’s until Feb. 1, 2013, and then adds for the next six months anybody else willing to conduct health care operations to bid, which if not executed then the property reverts back to the Louisiana State University System. The one thing it doesn’t allow is sale of the property, even if it were for health care purposes.

Therefore, the state tied its own hands, and puts the Gov. Bobby Jindal Administration in a jam. For it to be able to present a balanced budget, it had to rely upon this money, for which it has drawn criticism. However, it’s almost impossible to conceive of a business situation where somebody’s going to want to lease property, for no matter how long, at 70 percent above its appraisal. Because of its location next to Children’s, maybe it would have bought the property well above the appraisal but, again, the law precludes that option.

Thus, the state now has gotten boxed into a bad situation. It’s under pressure to get a deal on the property or its gets nothing at all, and whatever it gets leaves a budgetary hole that potentially means further cuts in health care funding down the road. Yet it’s a situation that could have been avoided in whole or largely by allowing a sale for any use (and/or the gravity of which would be reduced without the need for plugging in proceeds from a sale to finance continuing operations.)

So why did the state constrict its latitude on this kind of deal? The legislative intent appeared to be to make the property be used as a health care facility, perhaps partially or entirely devoted to mental health to offset the loss of beds by the original NOAH closing and the recent Southeast Louisiana Hospital shutdown (even though the state and region remain with a comfortable number of beds for psychiatric purposes). A leasing strategy would give it more control over this.

But why should the state be so concerned about trying to directly influence the number of beds provided? If the market is there – and because so much health care spending comes now via government, it can substantially influence that marketplace to ensure this – nongovernment concerns will supply. Maybe not at 210 State Street, New Orleans, but somewhere in Orleans, and maybe where land values are cheaper and transportation more facilitated, lowering costs to clients. There’s nothing really critical about having to have health care provided at that exact location on state land. – especially when the state is doing its best to reduce ownership and direct supervision of health care provision.

Unless you’re a typical Louisiana politician who equates the power and prestige of office-holding with the amount of stuff over which you have control. Or a Children’s Hospital insider to whom this provides a golden expansion opportunity, even if all you can get is a lease rather than buy arrangement. That latter concern is permissible, because this private nonprofit entity’s mission is to provide health care to children and this kind of deal helps that.

But what concern should it be of the state to be a landlord? It should work for the citizens, to get the best deal possible for them. And restricting this deal in so many ways which deliberately devalues its return to the citizenry, when such restrictions are not necessary to ensure the adequate provision of health care, means this is more about fulfilling egos than serving the people – with a dash of parochialism with a few legislators trying to respond to a handful of special interest and constituent desires.

The attitude that too many Louisiana politicians have where state property is treated like a gun in the late Charlton Heston’s hands, rather than understanding they are stewards employed by the people to deal with property in a way that best benefits the people unfortunately persists as part of the waning populist political culture in the state. In this instance, it has left the state with hard choices that don’t appear to have any immediately desirable resolution.